I am not an economist. This is therefore not an intricate financial analysis or a discourse on complex economics.
But I understand enough to suggest that the purpose of Dr Patrick Njoroge’s Madaraka Day announcement is unstated. In his atypical address during a national day public event, the elusive Central Bank of Kenya governor announced that Kenya was finally issuing a new currency.
The currency change had been expected for a long time. The Constitution of Kenya had in 2010 required that the government issues new currency upon promulgation. The government had delayed the issuance of the currency, relying on the saving clause in Constitution, which had legitimized all currency issued before 2010.
What was unexpected, at least by most of the public, was firstly, some of the aspects of the design of the currency, and secondly, the requirement that all the old 1,000 shilling notes would cease to be legal tender on October 1.
Let me dispense with the design first. In the hierarchy of issues with the CBK move, the design is an unfortunate distraction. It is obviously a contemptuous disregard of the constitution, which clearly required that no portrait of any person be in the new currency.
I however believe we can live with having the first President in the background of the currency, joining many, including the US, with such a tradition. Anyway, we can safely leave that aspect to Okiyah Omtatah, Simon Mbugua and the courts.
The more problematic issue is the requirement to exchange the 1,000 shilling notes within four months.
Dr Njoroge’s edict was ostensibly to catch those keeping proceeds of crime cash or ensure that they lost their ill-gotten monies if unable to exchange it by the deadline.
That has been the focus of public discussions with many celebrating, believing that finally the corrupt had been caught in fraglante delicto. Methinks however that Dr Njoroge and his team are not naïve enough to imagine that people with illicit cash are twiddling their thumbs wondering what to do.
We need to look no further than India where a similar approach was taken to wipe off illicit money once Narendra Modi’s BJP government was elected. Even though India gave everyone 48 hours to exchange their cash, by the end of the process, 99 per cent of all cash had been returned to the formal banking system. Kenyans have four months, enough time for the ever wily and ingenious to to get their cash into the system. And there have been enough indications that this was coming, ever since new coins were launched in December 2018.
Assuming then that the government’s principal achievable aim is not catching the corrupt, there are two other unstated reasons for the October 1 edict. The first is to improve the liquidity position by reducing the amount of money operating outside the banking system.
That can only be good for the economy as the banks should now have more cheaper credit available for business. The other is to expand the tax base by ensuring that many who have stayed off the taxman’s radar are now in the system. With our current integrated identification systems, including the Huduma Namba, anyone who deposits a significant amount of cash, even if they have no bank account, will be noted by the system.
CBK has required that all big depositors open bank accounts. It will not be long before the new KRA Czar pays a visit to understand depositors’ source of cash and whether they have rendered unto Caesar what is Caesar’s.
This is also good for the economy. There are too few people carrying the tax burden while many, who can afford to, are safely outside the reach of the taxman. It is only as more people feel the burden of heavy taxation without corresponding services that the demand for better services and a more accountable government will intensify.
So, let us hope that some sleazy characters will be caught by this deadline. But even if that does not happen, the “mopping up” process, if well managed, can leave a stronger economy and ultimately a better country.
- The writer is an advocate of the High Court
